A combination of strong pre-let activity and a reduction in refurbished space has meant that vacancy is now at its lowest level for three years at 4.9% as large corporate occupiers compete for space with smaller firms. The research also demonstrates that the City core witnessed rental growth of 5% in 2019 to £70-£72.50 on best mid-floor accommodation with further uplift.
The firm notes that in the second half of the 2019, over 2 million sq ft was either pre-let or believed to be under offer, equivalent to the whole total for 2018.
James Walker, head of City agency at Colliers International, explains:
“The pressure on City space is having a knock-on effect on occupier behaviour with them now having to anticipate lease events as much as four years in advance. Not only that, but the traditional large occupiers are coming up against smaller businesses as tech and media firms are attracted by competitive rents compared to other London markets. We have seen average deal size for pre-lets fall to 65,000 sq ft from 115,000 sq ft in 2017 as a result.”
Availability of new and refurbished space has also fallen, with the supply pipeline failing to keep pace with demand according to Colliers. In the last 18 months, new and refurbished availability has fallen by 45% and has only been supplemented by 90,000 sq ft of surplus space at the recently completed 100 Bishopsgate. Availability of City new and refurbished stock is currently 90% below its previous peak and stands at 600,000 sq ft.
Guy Grantham, research director at Colliers International, added:
“The City has been affected by a perfect storm of increased demand, a lack of speculative development and a rush on refurbished space. Early lettings during construction are becoming significantly more popular, and we expect to see several ‘opportunist’ refurbishments happen this year which will perform well as landlords look to turn around space that has been vacated by re-locaters and movers. On current standings it looks like the undersupply will persist for at least the next 18 months as these solutions fail to fully solve the lack of space.”